Quarterly / Earnings Reports | Third Quarter (3Q) Update

PDC Energy Reports Q3 2019 Results

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PDC Energy, Inc. reported its Q3 2019 results.

Third Quarter 2019 Highlights:

• Net cash from operating activities of $234 million, adjusted cash flow from operations, a non-U.S. GAAP financial measure defined below, of approximately $202 million, and oil and gas capital investments of $164 million.
  
  
• Approximately $39 million of free cash flow, a non-U.S. GAAP measure defined as net cash from operating activities, adjusted for changes in working capital, less oil and gas capital investments.
  
  
• Total production of 12.7 million barrels of oil equivalent ("MMBoe"), or approximately 138,000 Boe per day, a 26 percent increase from the third quarter of 2018.
  
  
• Lease operating expenses ("LOE") of $2.87 per Boe, a 12 percent improvement from the third quarter of 2018.
  
  
• Average Delaware Basin drilling, completion and facility costs of approximately $1,150 per lateral foot, a 37 percent improvement compared to average full-year 2018 costs of $1,835 per lateral foot.
  
  
• In October, the Company's borrowing base under its revolving credit facility was reaffirmed at $1.6 billion with an elected commitment level of $1.3 billion. Contingent upon closing the acquisition of SRC Energy, Inc. ("SRC"), the Company's borrowing base has been approved at $2.1 billion with an elected commitment level of up to $1.9 billion.

President and Chief Executive Officer, Bart Brookman commented, "The third quarter marked a true inflection point for PDC as we delivered on our stated goal of generating free cash flow despite a challenging commodity price back drop. Additionally, we announced a transformative merger with SRC that we expect will deliver long-term value through enhanced scale, resilient assets, an incredibly strong balance sheet and the ability and commitment to generate sustainable free cash flow. For the remainder of 2019 and all of 2020, PDC is focused on the successful integration of SRC, generating meaningful levels of free cash flow, paying down debt and continuing to opportunistically return capital to shareholders."

Operations Update

In the third quarter, the Company invested approximately $164 million while delivering production of 12.7 MMBoe, or approximately 138,000 Boe per day, an increase of 26 percent from the third quarter of 2018 and one percent from the second quarter of 2019. Oil production of 4.9 million barrels in the third quarter represents similar volumes as the second quarter of 2019 and an increase of 13 percent compared to the third quarter of 2018. Both total production and oil production volumes in the third quarter 2019 are in-line with internal expectations as modest Delaware Basin outperformance offset the negative impacts to Wattenberg volumes due to unplanned third-party midstream downtime in parts of September.

In Wattenberg, the Company invested approximately $123 million while reducing its rig count from three to two at the end of the quarter and utilizing one full-time completion crew to spud 26 wells and TIL 43 wells with average working interests of 94 percent. Average well costs for the quarter were between $100,000 and $200,000 below budget and reflect both drilling and completion efficiency gains realized year-to-date. The Company's oil production mix for the quarter was negatively impacted from high line pressures as a result of the delayed processing capacity expansion from its primary third-party midstream provider. Fourth quarter volumes are expected to increase modestly due to the gradually improving basin-wide operating environment.

In the Delaware Basin, the Company invested approximately $41 million to spud and TIL four wells with average working interests of 96 percent. Well costs for the quarter averaged approximately $1,150 per lateral foot and represent total drilling, completion and facility costs between $200,000 and $800,000 below budget, depending on lateral length. The Company idled its completion crew in early-July and plans to run two drilling rigs through the remainder of 2019. Fourth quarter 2019 production volumes are expected to decrease five to ten percent from third quarter levels due to no additional TILs planned through year-end, as consistent with the Company's guidance.

Stock Repurchase Program

Year-to-date, the Company has returned approximately $155 million of capital to shareholders through the repurchase of approximately 4.7 million shares of common stock outstanding via its previously announced $200 million stock repurchase program (the "Program"). Approximately $40 million was used to repurchase 1.2 million shares of common stock outstanding in the third quarter of 2019 with an additional $9 million used to repurchase approximately 340,000 shares in October 2019. The remaining repurchases under the Program are currently expected to be conducted in open markets, at the Company's discretion and in compliance with safe harbor provisions. Contingent upon the closing of the SRC acquisition, which the Company anticipates to occur in early 2020, the Board of Directors approved an increase and extension to the Program to $525 million with a target completion date of December 31, 2021. The Company projects to generate a sufficient level of free cash flow from the fourth quarter of 2019 through year-end 2021 to fund the Program.

The Company is unable to present a reconciliation of forward-looking free cash flow because components of the calculation, including fluctuations in working capital accounts, are inherently unpredictable. Moreover, estimating the most directly comparable GAAP measure with the required precision necessary to provide a meaningful reconciliation is extremely difficult and could not be accomplished without unreasonable effort. The Company believes that forward-looking estimates of free cash flow are important to investors because they assist in the analysis of the Company's ability to generate cash from its operations in excess of capital investments in crude oil and natural gas properties.

Oil and Gas Production, Sales and Operating Cost Data

Crude oil, natural gas and NGLs sales, excluding net settlements on derivatives, decreased 17 percent to $307 million in the third quarter of 2019, compared to $372 million in the third quarter of 2018. The decrease in sales was due to a reduction in sales price per Boe, excluding net settlements on derivatives, of 34 percent to $24.18 in the third quarter of 2019 from $36.88 in the comparable 2018 period, partially offset by a 26 percent increase in production. The decrease in sales price per Boe was driven by 20 percent, 43 percent and 65 percent decreases in weighted-average oil, natural gas and NGLs sales prices, respectively, between periods. Including the impact of net settlements on derivatives, combined sales decreased five percent between periods to $309 million from $324 million.

Financials

Net income for the third quarter of 2019 was $16 million, or $0.25 per diluted share, compared to net loss of $3 million, or $0.05 per diluted share, for the comparable 2018 period. The primary difference between periods is a result of an approximate $150 million difference in gain (loss) on commodity derivatives. Adjusted net loss for the third quarter, a non-GAAP financial measure defined below, was $24.5 million, or $0.39 per diluted share in 2019 compared to adjusted net income of $32 million, or $0.48 per diluted share in 2018. The year-over-year difference was primarily attributable to a $44 million loss on sale of properties realized in the third quarter of 2019.

Net cash from operating activities was $234 million in the third quarter of 2019, compared to $197 million in the comparable 2018 period. The increase was primarily driven by changes in working capital between periods. Adjusted cash flows from operations, a non-GAAP financial measure defined below, was $202 million in the third quarter of 2019, compared to $201 million in the comparable 2018 period.

General and administrative expense ("G&A") was $41 million, or $3.23 per Boe, for the third quarter of 2019 compared to $48 million, or $4.78 per Boe in the comparable 2018 period. Third quarter 2019 expenses included approximately $5 million in legal-related costs primarily associated with the SRC acquisition. Excluding these costs would have resulted in G&A of approximately $36 million, or $2.81 per Boe for the third quarter of 2019. The Company projects its fourth quarter 2019 G&A to be between $2.60 and $2.80 per Boe, excluding additional merger-related expenses expected in the fourth quarter.

2019 Capital Investment Outlook and Financial Guidance

The following table summarizes the Company's current 2019 financial guidance:

The Company projects to generate free cash flow between $110 and $150 million in the fourth quarter as it expects a material reduction in capital investments compared to the third quarter, driven primarily by reduced Wattenberg completion activity. Additionally, the Company projects its fourth quarter production volumes to be relatively flat, as it expects Wattenberg sequential growth to offset the aforementioned Delaware declines.

The Company expects its 2019 capital investments to be at, or near the bottom end of the $810 to $840 million range. Full-year 2019 G&A, excluding second half merger-related expenses, is expected at the mid-point of the $3.00 - $3.20 per Boe range.